Searching for International Business Opportunities in a Risky World
We are currently finalising our annual whitepaper on the import potential of each country in the world regarding information technology. The paper is a tool for B2B software companies preparing their international business development plans.
The recent COVID-19 pandemic, Russia’s invasion of Ukraine, the war between Hamas and Israel, China’s increasing imperialistic ambitions, the uncertainty introduced by Trumpism in the USA and the growing acceptance of severe and man-made climate changes are changing the world.
Small and medium-sized B2B information technology companies with ambitions for international expansion and global growth should carefully consider their current and future business model environment before choosing their target markets.
Reflecting on these changes, I have applied a new algorithm for calculating the import potential, as described later in this post.
Considering national market conditions is especially crucial when your software requires substantial localisation, your business development efforts need feet on the ground and post-sales support must be provided in the local language, in person and on short notice.
The whitepaper reviews the various go-to-market approaches and urges the reader to consider the virtual and remote options that considerably reduce investment requirements and risk.
When this approach is impossible, the whitepaper recommends identifying and prioritising the markets where investments in localisation and infrastructure represent the lowest possible risk. Using these criteria, Northern Europe deserves consideration.
The whitepaper finally estimates the relative demand capacity for B2B information technology and related services worldwide.
This estimation is called “The BECH Index.”
I believed that the struggle for democracy, the promotion of human rights, and the pursuit of a free world had been resolved with the conclusion of the Cold War and the disintegration of the Soviet Union. I thought that globalisation, marked by the growth of trade, travel, and communication, would steadily usher in prosperity, freedom, and democracy for all.
Unfortunately, I was wrong. Hopeful, but naïve. The expectation that increased international trade and communication would reduce tension and maintain peace was unfounded.
As we emerged from the COVID-19 pandemic and anticipated a resurgence in global economic growth, I was confident that the climate agenda would regain its prominence on the political stage. However, the situation shifted when Russia initiated a war against Ukraine, and China’s demeanour grew increasingly hostile. More recently, conflict erupted between Hamas and Israel, and the United States has yet to distance itself from the unpredictability of Trumpism decisively.
Despite the atrocities and the increased uncertainty, the economy in most of the Western world has recovered nicely since COVID-19 and has been remarkably strong during the conflicts. The business climate in this area will remain friendly until we know the outcome of the US presidential election by the end of 2024.
If Russia succeeds in their assault on Ukraine, the war in the Middle East escalates, we get a Trump version 2 situation, and China decides to annex Taiwan, then we must reconsider our international investment opportunities.
How Uncertainty Affects Your Choice of Markets
The degree to which you are affected by uncertainty depends on the level of investments required for market entry.
If you have a product or service that customers buy or subscribe to without a need for any national infrastructure, then you take what comes.
However, the more you must invest before becoming attractive and acceptable to customers, the more you should consider the local business environment.
Here’s my straightforward advice: Exercise caution when dealing with risky markets and focus on stable and transparent democracies instead. The benefit of such markets often lies in their ability to command higher prices, with purchase decisions driven by product features rather than personal relationships. Additionally, these markets are typically easier to initiate and are less susceptible to disruptions caused by political instability.
The BECH Index
in 2024, the BECH Index will celebrate its tenth anniversary. I changed the algorithm behind the Index in 2016. For the 2024 edition, I change it again.
All versions use PPP GNP, “Purchasing Power Parity Gross National Product.” It’s an economic indicator that measures a country’s or region’s total economic output, considering the differences in relative price levels and currency values. Thus, PPP GNP reflects the value of all goods and services produced by a country’s residents and businesses while adjusting for differences in price levels between countries. This adjustment provides a more accurate comparison of the standard of living and economic well-being across different nations.
To adjust for differences in industrial maturity and the impact of natural resources, I changed the BECH Index in 2016 by using the GDP composition on agriculture, industry, and services. I assumed that the demand for information technology would grow as a society moves from dependency on agriculture, through being dominated by industrial manufacturing, to mainly producing services. I recognised that the productivity improvements that enable a society to grow and prosper with relatively small portions of the GDP originating from agriculture and industry were supported by information technology (and free international trade). I presumed that post-industrial activities consume far more information technology products and services than the primary and secondary sectors.
I have added the Corruption Perceptions Index (CPI) to the algorithm this year. The CPI aggregates data from several sources that provide perceptions of corruption in the public sector from businesspeople and country experts.
The new BECH Index is the three-sector weighted PP GNP multiplied by the CPI.
This whitepaper uses the GDP dataset from April 2023, downloaded from the IMF website.